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How do the startups that offer free web services make money?

Across the Internet you’ll find a huge range of free services, and you’ve probably asked yourself how these companies can possibly be having any success. If you’re giving something away, how can it be making you any money? There are many ways that these companies find success using a wide range of different yet innovative business models, so here’s a few tips on how offering freebies can generate more revenue than you thought!

Targeted Advertising

Some companies give away free web services or applications to their users and then use the information the user gives them and other information they can find to produce and stream targeted adverts. These targeted advertisements are designed to convince the user to buy something and a percentage of this purchase will then go to the original company. You’ll find targeted advertising used frequently on Facebook.

Freemium

This model is fast growing in popularity as it is designed to attract people to a better version of a product they’ve already using. Initially all members can enjoy a free version of a product, and then a percentage will choose to pay for a ‘better’ version. The company marketing the product is banking on the percentage that chooses to buy the product. Intuit is a brand that adopts this model. They offer free money management apps to attract customers to their full accounting software, which is paid for.

In-App Purchases

Also known as the Zynga model after the brand that kicked it all off, capital is earned in this scenario by customers choosing to spend money once they’ve downloaded and enjoyed a free app. Zynga, the popular gaming company, sell products through their apps to enhance the app further and make it more enjoyable.

Sponsorship

Some companies have so much faith in their product or service that they believe it can be kept afloat by asking for donations. The champion in this corner it the famous Wikipedia, which routinely asks for donations to keep the business going. Many open source tools and plugins for WordPress have followed this route too.

Freebie Marketing

Some companies know this as the Gillette Model and it’s based upon offering one base product at a low price with essential add-ons making up the cost. The Gillette firm is known for the cost of their razors being much less than the blades and the same can be said for printers and the cost of their ink, for example.

Professional Open-Source

Strictly for web-based businesses, this marketing model is designed to keep customers coming back for support and customization of their original software download. The original download itself remains free, but the software company is banking on a percentage of customers returning to them so they can generate revenue through paid professional support, maintenance and upgrades alongside the original software product. Many brands including JBoss and Red Hat have found success this way.

This is just an introduction to some of the many marketing models out there and shows you exactly how a web-based business can become huge whilst still offering free products.